State Street Global Advisors, the asset management business of State Street Corporation has announced the release of its Annual Stewardship Report, showcasing the results of its annual stewardship activities, highlighting year-to-date progress, and identifying key focus areas into 2020.
“Stewardship is integral to our investment approach because we regard it is an essential aspect of fulfilling our fiduciary duty. We are committed to practicing proactive responsible stewardship across our entire asset base,” said Rick Lacaille, Global Chief Investment Officer at State Street Global Advisors. “While environmental, social and governance considerations have always had a place in our firms’ approach, over the past year we have prioritized a deeper examination of how we can improve our integration across all investment strategies – a reflection of our view that these issues will only become more important as drivers of return and risk.”
Continued Lacaille: “In 2018, we observed that social issues such as gender diversity and human capital management moved to the fore of the ESG conversation and were increasingly recognized by other investors as important long term value drivers. In 2020 our stewardship team will continue to explore how our portfolio companies carefully navigate these issues to deliver better long term value.”
The State Street annual report provides a comprehensive look at the asset stewardship team’s engagement efforts, including the impact of core multi-year campaigns focused on gender diversity and climate change, its increased focus on key social issues, and a briefing on how the asset manager is integrating ESG and State Street’s ESG scoring system, “Responsibility- Factor” (R-Factor™), across stewardship efforts.
“Our stewardship program is designed to have an impact,” said Rakhi Kumar, Head of ESG Investments and Asset Stewardship at State Street Global Advisors. “I am especially pleased to announce that as of June 30, 2019, 43 percent or more than 580 of the 1,350 companies identified as part of our Fearless Girl campaign responded to our call by either adding a female director or committing to do so. On climate change, we have conducted more than 365 engagements since we began engaging on the issue in 2014. This year, we found that while boards are starting to see climate change as a risk that needs to be mitigated, they are responding in a short-term tactical manner to a long-term strategic challenge.”
In 2018, State Street’s stewardship team focused on board guidance in several sectors, including retail, pharmaceuticals, and materials. In addition, they also focused on broader themes of corporate governance in the U.S., U.K., Australia, and Europe; pay strategies; and the incorporation of sustainability into long-term strategy. The firm engaged with 1,530 companies on key stewardship issues, representing about 70 percent of the firm’s equity assets under management. Almost half of those engagements were comprehensive engagements centered around in-person meetings or via conference calls, while the rest focused on letter-writing campaigns. The report also provides insights into the impact of its stewardship program over the last year by sharing illustrative examples of company responsiveness to State Street’s voting or engagement action.
The report details the ways in which State Street has prioritized ESG integration across strategies and investment teams. The firm has invested significant resources into building R- Factor™ — proprietary ESG scoring system launched this year, measuring the performance of a company’s business operations and governance as it relates to financial material ESG issues facing the company’s industry. Using transparent materiality frameworks and more than 450 data points from four leading data providers, the system scores more than 5,000 companies on their ESG practices.
“We’ve dedicated significant time and resources to developing R-Factor™ because of our belief in the value of ESG integration across investment strategies,” said Kumar. “By sharing R-Factor™ scores and educational ESG resources with portfolio companies, and developing investment solutions powered by the system, we are enabling investors and companies to help us build more sustainable capital markets for the future.”